The lenders of microfinance won’t be able to charge excessive rates of interest for Borrowers who are borrowers, Reserve Bank said on Monday
Microfinance companies are not permitted to charge high rates of interest to their clients, as the instructions from the Reserve Bank said on Monday and requested the setting of a limit that is higher than the cost of loans as well as the fees associated with them.
The term “microfinance” refers to credit that can be described as one secured by collateral and is granted to a family with an income per year of no less than 3 lakh dollars.
The announcement was made of the ‘Master Direction of Reserve Bank of India (Regulatory Framework for Microfinance Loans) Instructions 2022’. RBI stated that all institutions which are subject to the regulation (REs) must implement an approved policy that was set by the board concerning the costs of microfinance loans with a maximum interest rate as well as other fees that apply to loans made by microfinance.
“Interest rate and any other fees on microfinance loans shouldn’t be excessively expensive. These will be subject to scrutiny by the supervisory department of the Reserve Bank,” the guidelines say.
In addition, every RE must give price information to potential borrowers via a simple information sheet.
“Any charges to be imposed to the microfinance borrower from the RE its agent or partner must be disclosed within the document. The borrower is not paid any amount that is not specifically mentioned in the factsheet.” The document says.
Additionally, according to PaydayNow, it is recommended that there be no penalty for the early payment for Microfinance credit.
“Penalty, if any, for delayed payment shall be applied on the overdue amount and not on the entire loan amount,” the RBI announced.
Regarding the amount that can be used to repay loans made by household members, this report recommended that every RE must be directed by a rule approved by the board about the amount of cash flow as payments to meet the monthly loans of the household and that it should be proportional to the household’s earnings.
“This shall be subject to a limit of a maximum of 50 percent of the monthly household income,” it reads.
It is recommended that you draft a standard credit contract for microfinance loans using the language of your choice and comprehended by the lender.
In line with the guidelines in effect under earlier guidelines, were in place, an NBFC which isn’t able to qualify as a Non-Banking Financial Company – Microfinance Institution (NBFC-MFI) isn’t permitted to offer microfinance credit that is greater than 10% of the amount in assets.
The amount of microfinance loans available in these kinds of non-bank financial institutions (NBFCs not MFIs that are NBFCs) has been raised to 25 % of assets.